WITNESS CREDIBILITY 3: A JUDGMENT FROM TODAY: CREDIBILITY A CENTRAL PART OF THE CASE

This is the third post today about the subject of the assessment of witness credibility. By a curious piece of good planning it comes from a judgment today in Jiangsu Shagang Group Co Ltd v Loki Owning Company Ltd [2018] EWHC 330 (Comm). The previous post stated that it is usually possible to tell how the case will be determined following the judge’s assessment of witness credibility – see how you fare in this case.

THE CASE

Mrs Justice Carr was considering a challenge to an arbitral award in a shipping case. The claimant (in the action) contended that there was no binding arbitration agreement between the parties. The arbitrator had made an award for substantial damages.

“the Arbitrators have this month delivered an award (dated 8th February 2018) in relation to liability and quantum. Liability has been established in favour of the Owners with damages in respect of unpaid hire (quantified at some US$10.7million), damages from 12th April 2015 to 1st February 2018 (quantified at some US$39.1million) and future damages (quantified at some US$18.2million), together with interest and costs.”

THE CHALLENGE TO THE AWARD

The claimant contended that the guarantee relied on by the defendant had not been authorised by them. Therefore there was no valid agreement between the parties. This required the judge to consider the credibility of the witnesses with some care.

ASSESSING THE CREDIBILITY OF A KEY WITNESS

The judge had to assess the credibility of a key witness for the claimant “SWM”. An added difficulty was that SWM did not speak English and spoke through an interpreter. SWM was the only person who could have given authority for the guarantee.

I find at the outset as follows (and essentially non-controversially) that there was an established procedure in place at all material times for the obtaining of JSG’s authority to guarantee Shagang’s obligations as follows. SWM only at JSG had authority for JSG to authorise a JSG guarantee. The guarantee would generally be contained in the charterparty itself. If a guarantee was required, SWF would seek his authority for a JSG guarantee (by telephone or face to face) after the key terms had been negotiated to agreement or substantial agreement. This procedure was well-known to those within Shagang’s chartering department. Accordingly, as Winer Xu or others within the chartering department negotiated the terms of prospective fixtures, they would flag up to SWF if a guarantee was requested. In the discussion between SWF and SWM the proposed hire rate, the length of charter, the existence of a sub-charter and the total cash value would be discussed. SWM would indicate whether he agreed to a guarantee by JSG. Where Winer Xu had raised with SWF the need for a guarantee it would normally take about 2 days for SWF to revert with confirmation that JSG had given approval. Once SWM had given his authority and a charter concluded, the formal contract would be drawn up, sent to Shagang and taken by SWF to SWM for signature. This was the unchallenged evidence of SWM and Winer Xu, and indeed the existence of this practice is a positive plank of the Owners’ case.

I turn next to the task of assessing the reliability of SWM’s evidence. SWM was not accused of dishonesty in the witness box, nor is that how the Owners advanced their submissions before me, although they suggested that matters were put sufficiently in cross-examination for me to reach whatever conclusion (including as to dishonesty) that I saw fit. Their position was that his evidence is simply unreliable when assessed in the round.

The exercise of assessing SWM’s credibility in the witness box was a difficult one. Not only does SWM not speak English but he also does not read it. So when he was taken to English-only documents, as he often was, he was at a very significant disadvantage. (There was, for example, at least one occasion when he appeared not to answer a question by reference to an English document (for example an email of 30th April 2010 from an English solicitor to Su Hong of Shagang)). Having watched him in the witness box, however, I do not conclude that he was being evasive at the time. He appeared to me genuinely not to understand the nuance of what was being put to him.

Cultural and linguistic differences also mean that care needs to be taken not to adopt an over-literal approach to his answers in oral evidence. (By way of example, the Owners sought to emphasise SWM’s use of the future tense in answers to questions dealing with the timing of SWM’s discovery of the Guarantee. I do not consider that his use of the future tense can fairly carry the weight contended for.) I also bear in mind that this is the second time that he has given evidence on the same or similar material with a significant passage of time and further witness statements in between.

Nevertheless, based on his evidence before me, I found SWM to be not only courteous and patient but also in general terms to be giving his evidence to the best of his ability and recollection. He also came across, again in general terms, as a professional and good businessman. There was a mantra-like element to his assertion that if he agreed something, he would sign it, but that is understandable in circumstances where he was keen to ensure that an English court understood his position on the central issue in the case. These broad findings are not determinative on the specific issue of authority for the Guarantee. The probabilities fall to be assessed on the detail, but they set the background.

The Owners rely on the well-known remarks of Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) (at [15] to [22]), which emphasise the fallibility of the human memory, particularly in the context of the litigation process, and on the desirability of basing factual findings (either wholly or largely) instead on inferences drawn from the documentary evidence and known or probable facts. There is here effectively a total absence of documentary evidence in this case on the key question of authority; this makes the assessment task an unusual one for this jurisdiction.

I approach the exercise before me on the basis that, given the passage of time, the history of these proceedings and the absence of a contemporaneous documentary trail to follow, it is important to consider the probabilities in the round, including by reference to objective facts and documents, motive and overall probabilities (see for example Grace Shipping Inc and another v CF Sharp & Co (Malaysia) Pte Ltd [1987] 1 Lloyds’ Rep 207 per Lord Goff at 215-6, albeit that that was a case concerning alleged fraud). But this is not a case where the only direct evidence on the central issue, namely that of SWM, falls simply to be relegated without more to “second tier”. Rather it falls to be assessed against the inherent probabilities, and taking account of the limitations imposed by the differences in language and culture, the passage of time and the complications of the litigation process.

I find SWM’s evidence on this central issue on the facts of this case to be reliable. He did not have a conversation in about early November 2008 with SWF authorising the Guarantee. He has never said otherwise and has always positively denied that any such conversation took place. (I do not find the “concession” relied upon by the Arbitrators to have been a material concession, certainly not when taken in the full context of his evidence. There are also difficulties arising out of the precise wording of the questions and answers relied upon. In fairness, the Owners did not press the “concession” before me.) The Owners sought in closing to identify “internal inconsistency” in various aspects of SWM’s oral evidence, albeit in relation to matters not necessarily bearing centrally on the issue of authority. In fact, on a close reading of the passages relied upon, there were no such inconsistencies.

I do not find it likely that SWM would have forgotten an authorising conversation in November 2008, as the Owners suggested was the case. True it is that SWM said in his oral evidence on many occasions that he could not remember certain documents, conversations or events, often wholly unsurprisingly. But this would have been a memorable occasion for SWM, first in terms of the giving of authority (in circumstances where it was the first charterparty being fixed since July 2008 and SWM had just cautioned SWF to limit risk) and, perhaps even more strikingly, involving him then refusing to sign something which he had agreed relatively recently (in 2009 or 2010). I find that SWM would have confirmed the validity of the Guarantee if he previously had approved it. He honoured his previous authorities when signing the OMAHA and DAYTONA charters, in the absence of any documentary record binding him to them and notably after the market crash had commenced. Even if SWM had been someone who would pick and choose which guarantees to confirm formally by signature, irrespective of what he had authorised previously, there is no evidence that, at the time that the Pounda charter was presented by the Owners for signature, SWM was aware of any default on the part of EMIC, for example. This accords with Winer Xu’s recollection, who stated that, to the best of his knowledge, SWM was unaware of any such matters. Additionally, SWM stated that at the time he believed, and was being told by SWF, that the market would recover. It is also to be noted in the context of any motive for SWM to decline to sign up to something that he had previously agreed that, on the Owners’ own case as put to SWM, the market was already in decline at the very time when they assert that SWM orally approved the Guarantee.

The Owners submitted that SWM’s acceptance of the OMAHA and DATYONA (and indeed other) charters could be explained by the existence of profitable sub-charters on those charters. However, JSG was able to point to at least one other charter, the m/v “HOUSTON”, where there was no signature from SWM despite the existence of a sub-charter. This tends to undermine the theory. There was also reference to 3 other charters where JSG has not signed and there are (ongoing) issues as to whether SWM authorised the guarantees in question. In circumstances where those issues are, so I was told, the subject of separate litigation, and the issue of authority on those charters is unresolved and not fully before me, I am unable to derive any significant assistance from them. The experience with the m/v “HOUSTON” demonstrates the dangers of proceeding in any other way and by reference to partial or contested facts.

There were from the documents undoubtedly occasions when SWM’s signature on formal charterparties was significantly late, and where there was much “chasing”. I accept SWM’s evidence that he was dependent on SWF to bring him such documents for signature and that he was unaware of the detail of delays. He accepted that it was perfectly possible that SWF was using the delay as leverage in order to renegotiate better terms. But this was not a practice in which SWM was directly engaged.

I find that the likelihood is that the Guarantee and the need for SWM’s authority was overlooked by SWF at the material time. This is inherently probable in circumstances where it was originally anticipated that the DAYTONA would be simply be replaced, rather than the charter party and associated guarantee cancelled. There was no question of a new guarantee being required at this stage. The decision and agreement to cancel the DAYTONA charter came later. The question of authority for a replacement guarantee was then overlooked. On any view it was not a standard transaction. The Owners, Drybulk and HRS never mentioned the Guarantee in terms to Shagang or SWF in the context of the POUNDA at the time. Shagang and SWF never mentioned the Guarantee in terms to the Owners, Drybulk or HRS in the context of the POUNDA at the time. This is to be contrasted with the recaps on the CAPE EREGLI, OMAHA and DAYTONA charters which all made express reference to a JSG guarantee. This reflects the fact that it was an unusual transaction. Winer Xu’s email of 14th November 2008 is at least consistent with such an oversight within Shagang at the time:

“TKS FOR THE OWNERS RECAP, WHICH THE CHTERS CAN CFM THE SAME…..”

The Guarantee and the need for SWM’s authority for JSG to give it on the new charter was not on anyone’s radar.

The conclusion that SWF probably overlooked the need to speak to SWM for the Guarantee is supported by the evidence of the very impressive Winer Xu, who could be said to be an entirely independent witness (since he no longer works for Shagang or any JSG related entity, having left Shagang in early 2010). Winer Xu could not speak of course directly to the contents of any conversation between SWF and SWM. But he could confirm that there was never any discussion of the Guarantee within Shagang or with SWF in particular. Whilst his opinion that it seemed likely that SWF never asked SWM for authorisation for JSG to guarantee the POUNDA charter was, as he freely accepted, “pure speculation”, it was nevertheless the opinion of someone very well placed to express a view. “

AND THE RESULT…

The claimant was successful and the (substantial) award set aside. The claimant succeeded on this central finding:-

“I have therefore come to the conclusion that it is unlikely that SWM gave JSG’s authority for the Guarantee.”